Corporate Sustainability Reporting And Its Significance In The Financial Reporting Environment

Task 1

1. Identify critical issues in the accounting and accounting theory.

2. Explain the financial reporting environment especially with respect to corporate social reporting.

3. Critically assess the reporting practices of the two case companies.
 

Corporate social responsibility and sustainability has gained significant importance in which companies operate in the business environment in the 21^st century as the world is coming to terms with the fact that the natural resources are limited and would be depleted in their reserves by the turn of the next century. Thus corporate sustainability reporting is defined as the practice of publishing the performance benchmarks of the company in the domain of social, economic and environmental protection.

Sustainability reporting is gaining a new prominence in Australia encompassing the various aspects of corporate social responsibility measures that have been undertaken by large corporations with a view to make an impact in the domain of environmental protection, community welfare and better integration of the various social structures that influence the workings of an organisation. Particularly in this respect environmental issues have been highlighted by the government as having the utmost need to be fulfilled if the world is to function in a normal manner with the least impact on the global climate. Business sustainability reporting could be described as the process of measuring, disclosing and integrating the wants and requirements of internal and peripheral stakeholders of an organisation as a section of the greater sustainable development process. The main motive of corporate social reporting is enhancing organisational performance towards developing sustainable business processes that satisfy the needs, aspirations, choices and preferences of customers and at the same time minimizing the impact on the natural and social environment by suggesting suitable business solutions that would ensure business processes are viable for a substantial time in the future (Wagner, 2005). It may be noted here that the stakeholders are becoming increasingly aware of the need to make plans for establishing a viable business culture that has immense potential for value creations for themselves and also the customers within a broader perspective. The stakeholders are interested in knowing the sustainability approaches of the company In terms of social, economic and environmental sustainability of the various key initiatives taken by the company to make the business prosper and to realise its smaller term and longer term objectives. For example the legislative requirements and the regulatory framework has been forcing  Australian corporations to make mandatory disclosures about the green house gas emission standards of their business operations and what steps are being taken by the companies to minimize their potential impact to the business.

The Need for Corporate Sustainability

The need for corporate sustainability will now be discussed in detail. It is a well known fact that the intrinsic and extrinsic worth of a business is determined by effective professional relationships that it cultivates with the internal and peripheral partners including the people of the wider community where it operates its business in order to experience significant welfare of the common mass of that community. The ability of the company to communicate effectively with all the concerned stakeholders goes a long way to reinforce its business plans and paradigms that have been recognised as those values that drive the company forward. The distinct advantages that have been associated with corporate sustainability reporting is that it aligns the aims and objectives of the company with the inherent stakeholders value, predicting their pre-emptive action plan and then by using efficient means to enhance the value chain by implementing effective business operational cycles. From the perspective of stakeholders corporate sustainability reporting in its many forms like annual general reports, newsletters or hard copy memos open up a new source of knowledge with respect to issues like the activities of the business organisation regarding the adherence to laws, norms and ethical codes of business practice that have a wide ramification on the business prospects of the organisation (Wagner, 2005). These corporate publications provide the means to the stakeholders and the shareholders to form an idea of the organisational culture of the company and enable it to benchmark the various performance criteria that are used to judge its business performance. The report also throws light on the fact how a corporation goes about the process of utilising the process of company influence to implement sustainable development plans and how effectively it can use its resource to realise those plans in a practical way in the real life. Armed with the corporate sustainability report the stakeholders can also map the financial and economic success of various business processes and projects undertaken by the company over a period of time and also compare the same parameters over a spectrum of different companies. From the point of view of regulatory requirements it is not binding on the part of the companies to make mandatory corporate sustainability initiative reports in the recent time but for the coming time the legislative authorities are mulling to include it as a part of the annual general report that a listed company publishes on a yearly basis (Montiel, 2008). Under the proposed new law the companies may have to include sustainability related information in their official newsletters and brochures so that the public could be aware of the various corporate sustainability initiatives that the company is undertaking on the behalf of its internal and external body of stakeholders.

Designing a Corporate Sustainability Report

The corporate sustainability report should be planned and designed in such a way that the stakeholders including the customers and the general public become aware of the affairs of the company and that the report meets their expectations. The content of the report should be aligned with the overall business strategy, mission, vision, aims, aims and objectives of a business firm. On the whole the essence of the report should be targeted at the needs and expectations of the broader group of shareholders and stakeholders alike. The process of sustainability reporting is indeed very complex and includes a broad spectrum of corporate, economic, social and environmental initiatives that have been undertaken by the company to satisfy the needs, requirements and demands of the shareholders as well as the various concerned stakeholders. Against the backdrop of the agreement to report various aspects of corporate business sustainability findings the company must be able to comply with the various reporting standards, the protocols and the benchmarks of such a report (Garriga & Melé, 2004). In addition to these the report should be such that it has the capacity to provide all the relevant and the pertinent information regarding the various aspects of the company initiatives in the sustainability domain by strictly adhering to standards, rules and regulations associated with such kinds of reporting in the business domain. The GRI guidelines provide additional framework for writing such reports as they are deemed fit for this kind of business writing. The GRI guidelines provide a wider framework for such reporting that can be used by all companies working in various sectors of Australia . The value of a company’s corporate sustainability report lies in its ability to make an accurate representation of the facts regarding both its performance and underperformance in various aspects of the business including areas of economic, social and environmental protection aspects.

Care has to be taken that the viewpoint provided in the report is holistic and balanced without slanting to one specific area of performance like profits and digressing from areas in which the company’s performance has not been up to the mark. The report should be as transparent as possible and must also include negative stakeholder feedback where such feedback has been given by the company. The utility and the relevance of the corporate sustainability report and also its credibility depends on the way the data and the information is being presented to the public. Moreover the data should be by and large objective and as impartial as possible so that erroneous assumptions are not made on the basis of a biased report. Quality of the report is of absolute importance if the company is to convince its stakeholders that it is committed and competent to manage the societal, financial and ecological factors of the business in an effective way. Needless to say that sustainability reporting should be aligned with financial reporting so that proper code of conduct in the accounting standards could be maintained and the company is free from the prospect of earning disrepute from scandals of mismanaged funds and also corporate frauds. Some of the experts are of the view that corporate financial reporting standards are of rigour in the matters of data collection and accuracy and much in the same way such should be the case of corporate sustainability reporting. As the interest level of analysts in the domain of investment in the area of corporate sustainability reporting has increased the same level of accuracy and rigour of financial reporting standards needs to be applied to some dimensions and areas of CSR reporting (Montiel, 2008). Sustainability reporting creates an opportunity to the stakeholders to take look at the progress of the organisation in the domain of social, environmental and financial aspects of the practical operations of the company. It is highly important to keep in mind that the issues discussed in the sustainability reporting is done in the context of the overall business strategy of the company and risks that are related to such kinds of reporting like getting a cold response from the body of the shareholders and the internal and external stakeholders of the company. Failure to align the  report with the overall business strategy of the company could result in the delivery of wrong information to the stakeholders that would risk damaging the relationship of the company with them and could also result in withdrawal of support of the shareholders to the strategic efforts of the company (Garriga & Melé, 2004). The report could also be termed as a green wash which means the customers, shareholders and the internal and external stakeholders are misled by the company regarding the information provided to the public about the company’s products or services.

Conclusion

Sustainability reporting is becoming a accepted phenomenon in recent times due to the increased level of interest of the various groups including the shareholders, stakeholders and even members of the wider customer groups regarding the environmental and social initiative taken by the company in the best interest of the society and the community. Apart from these there is growing recognition of such initiatives not only by the stakeholders but also the customers as nobody wants to use products that are detrimental to the environment even though they may be well presented in an attractive package. The recognition of sustainability related issues could materially affect the performance of the company in terms of business growth , sales turnover and also long term and short term viability of the various business process that the company is currently executing within its own capacity in the competitive business environment of Australia and other places down under. Sustainability reporting provides an effective channel of communication and a platform to the stakeholders to voice their concerns on various sustainability issues that affect the business and the production line of the company (Wagner, 2005).

The added benefits of sustainability reporting include demonstrating a high degree of transparency between the company, the shareholders who have committed investments in the company and the internal as well as the external stakeholders. The fact that the company is publishing sustainability report shows that it is committed to expose its ability to manage economic, social and environmental issues with equal flair and that it wants to engage the stakeholders in a meaningful dialogue with the company. Apart from this CSR reporting provides for the creation of financial value since the rigorous methods applied in collecting, sorting and assimilating various kinds of data regarding the business processes of a company enable the shareholders further incentive to invest their money with the company (Garriga & Melé, 2004). Also corporate sustainability reporting helps to enhance the pride of the organisation based on the interest of the partners in the areas of social, ethical and environmental dimensions that have widespread repercussions and ramifications within the minds of the groups of shareholders and also the internal and external stakeholders. 

The Westpac bank is one of the leading banks operating in Australia and New Zealand. The bank has a rich portfolio offering of monetary services as well as asset administration and commercial investment services to retail and institutional consumers all across the globe.

Every company has focus on ensuring sustainable future in the market. Westpac Bank that is one of the leading banks working in Australia and New Zealand aims to work with different stakeholders like shareholders, employees, customers to make sure it has a sustainable future in the banking sector (Farber, 2005). Ideas like these are ingrained in the morals, paradigms, and culture the bank mutually shares and distributes with a range of people of whom it identifies itself by fulfilling the needs and demands of each of the internal and external stakeholders.  Thus it reports these facts in the corporate sustainability newsletters and brochures.

The main sustainability paradigms followed by the bank as part of its sustainability drive involves the participation of all its stakeholders as a section of tactical decision making agenda along with meeting the wants and demands of the loyal clients in a way that minimal risk is involved as far as the well being of the society and the protection of environment is concerned. To make sustainability happen in the material world  the bank undertakes  various  activities  like digitisation of the banking services  which are done in such a way  that the customers are the real beneficiary  and the banking products and functions  can  respond to a huge  range of demographic changes that influence the way the banking operations are carried out to meet the objectives of the shareholders  (Hutchins et al.2005). Another aspect of sustainability reporting is concerned with inclusivity which includes t all the stakeholders in the decision making process by informing them regarding the organisational objectives of the banking institution in precise and transparent manner.

Business corporate reporting at Westpac is all about establishing an unbiased as well as a distinct protocol in a process that the independent directors and board work to fulfil the wants and demands of all the related partners on issues concerning economic, social and environmental development. As per the annual general report of the bank more evidence point out that good corporate sustainability reporting principles make it possible to maximize the value of shareholders return that is conducted in a precise and transparent way. Each of the directors are accountable to  the CEO as to how to report the social and ecological effect which is achieved by the financial institution and also how transparent reporting methods ensure that the bank is free  from scandals  and frauds  related to mismanagement of money and the debt securities that have been issued. For example the board allows an effective whistle blower policy which protects the interest of the person who is exposing corporate malpractices and makes him eligible for total safety and security cover (Garage & Melee, 2004). The diversity policy enables talented women employees to climb up the corporate ladder and rise to the top echelons of the organisation.

The potency of corporate sustainability of the reporting standards of the bank is such that it brings all the pertinent information together and is disclosed to the common people as regards the activities of the upper management of the bank. The limitations are some of the confusing aspects in operation that do not form a part of the information like security of the savings as deposits and the fixed deposit of the customers of the bank against possible unfair means in the investment related aspects in the capital markets.

The ANZ is one of the bigger banks operating in Australia and New Zealand which has achieved success in the banking institution due to its wide customer base and brand loyalty.

The bank supports the cause of environmental protection as it regularly lends finance to effective environmentally safe technology and ecological services industry which are working hard to reduce the effect of the manufacturing activities on the atmosphere critically dealing with the factor environment alteration. With the support of the World Bank the company has already issued its first green bond in the capital markets of Australia. 70 % of its power funding is allocated to finance edit of conventional power companies like those engaged in hydel, tidal and solar energy creation units in and around Australia and New Zealand. The bank has been very successful in accomplishing to reduce its carbon footprint by reducing the involvement of paper in operation in its branches to the lowest much ahead of rest of the businesses in Australia (Clapper & Love, 2004). As Australia and New Zealand are now more of a cosmopolitan nation, the bank is now operating its online business in vernaculars for the sake of the consumers like those who belong to the ethnic minorities.  The financial institution is fulfilling the requirements of an ageing populace to improve the lives for the natives of Australia.

The CSR of ANZ bank involves different aspects like taking care of the communities through different works, also taking care of the employees that work within the organisation.

The principles of corporate sustainability reporting for a bank include different aspects like identification of the different obligations involved and roles of the employees and independent Chief Executive Officers the observing of social and environmental dimensions of the business. This bank emphasizes on fair accounting practices and projection profit and essential growth table of the institution in a distinct and precise process to the consumers. Effective corporate sustainability reporting practices have caused the fair allotment of work obligations and responsibilities among the senior level professionals of the bank.  As per the  annual general report submitted by the bank ethical code of conduct  is supported by the upper level management in carrying out  the regular operation of the bank (Bebchuk et al.2009). The investors are intimated of the operation procedure of the organisation goals it tries to achieve after the end of the financial year. As per the rules of ethical business practices the bank observes great rigour in financial reporting and fair accounting standards to gain the confidence of the consumer base and the shareholders alike. There is a monitoring  group that looks  out for confusions and interest troubles in between the upper management parties  in such a way  that the problems could be  fixed in due time before they rise to the level of corporate scandals  (Klapper & Love, 2004).

The Corporate Responsibility reporting has got different strengths which helps the company to get back up from the employees as well as the other stakeholders like the investors, suppliers and consumers obviously. 

Managing legitimacy through reporting is extremely vital for any business as it helps the business establishments to run their operations in a socially responsible and ethical manner. CSR information disclosures play an imperative part in helping the stakeholders to understand how much actively the organisations are involved in social activities and how has it helped in changing the face of the society. During the last decade business establishments have augmented the kind of information which is being revealed to their investors in the final financial statements.  This recent trend is mainly attributed to the increased pressures from the government to ensure that organisations are conducting their business in a socially responsible manner and are playing a pro-active role towards the growth and development of the broader society. There are also various theories which have been spawned by experts in this field which embraces the increased social and environmental liabilities of the business establishments (Farber, 2005).

The main theory associated with legitimacy is the general idea that in order to make sure the smooth continuity of their business operations, business enterprises must act in such a manner so that they remain within the boundary of what the society considers being a socially acceptable behaviour. The business organisations need to play a dynamic role in the overall growth and development of the society and in order to ensure the realisation of this objective they must undertake effective measures. If business establishment are continuing their business in a socially unacceptable manner merely for the purpose of maximising their profits and revenues from the market then its future existence in the market would come under a lot of threat. Believers of this theory essentially are of the opinion that the business enterprises are trying to earn the trust and faith of their customers in the market by willingly revealing information regarding their societal activities in their annual business reports. They are trying to legitimise their business operations in the market and remain in the good books of the government and the law enforcement authorities. It has also been found out that the propensity to disclose information regarding social and environmental activities are increased if a company has been involved in any kind of negative environmental activities which has been brought to light by the mainstream media. This helps the business establishments in defending or justifying their business activities which they have undertaken during the course of their business operations in the market (Klapper & Love, 2004).

Legitimacy of the reporting is mainly done based on the three different system oriented theories which helps to make the reporting effectively for the companies. For the above discussed companies Westpac Bank and ANZ Bank both of these companies have developed a strong viewpoint of their own to develop effective reporting. The corporate social reporting for these companies is based on the above mentioned theories. In the last few years organisations have focused on developing a strong hold over their consumers by revealing consistently effective information. These companies have managed their legitimacy effectively through effective dissemination of corporate social responsibility reporting information. For instance the Legitimacy theory is effective for both Westpac Bank and ANZ Bank as normally the legitimacy theory states that it is a common perception that the action of an entity is desirable with some socially framed format of norms, beliefs. The legitimacy theory plays an imperative part in explaining the role of behaviour of an organisation and their disclosure of information about their social responsibilities which would help to recognise their social objectives (Montiel, 2008). It is important to mention that both the companies have consistently disclosed their corporate information. Both the companies do report activities as per the rules and regulations the expectation of the Australian society. In cases when organisation’s activity does not respect social and moral values the society then it becomes visible that the society doesn’t support those organisations. Both ANZ and Westpac make sure that they indulge into activities that help to come close to the society. Green Banking and reducing paper information has helped the companies to keep effective relationship with the consumers. Similarly stakeholder theory looks at the relationship of both the companies with its internal and external stakeholders. Both ANZ and Westpac Bank have an effective relationship with its internal and external stakeholders. From the perspectives of the stakeholders they will be contented if their needs and wants are fulfilled. The stakeholder theory mainly shows that every company needs to take care of their stakeholder’s interest (Baumgartner & Ebner, 2010). In this scenario both these companies manage their legitimacy by disclosing different corporate information. Both ANZ and Westpac apply different movements that help to have a good build up with the stakeholders. Finally the Institutional theory says that the institutional environment influences the formal structure of a business. This helps in developing innovative ideas of both the companies ANZ and Westpac bank and it could be said that effective reporting will ensure legitimisation of the organisation. It is also said that adoption of such development of technology reaches a level where failing to attain these levels would seem irrational (Bebchuk et al., 2009).

Conclusion

The present study highlights the different aspects of corporate social responsibility. This study has highlighted the importance of CSR and its impact on the business. The study has discussed different theories which have helped to cover up the objectives laid down in the study. To conclude it could be said that CSR is an important part of a business and needs to be handled effectively in the contemporary market.  

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